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Did you actually read the article? It sure doesn't sound like it. Without getting into a debate about whether "plutocrat rag" is a good description of Forbes Magazine, the article in question has data and charts on all income levels, divided into quintiles.
I believe someone else has already expressed surprise that the top quintile begins at $62,000 and change. Does anyone have an explanation for that astounding figure? Yes, I get it that most people's income is lower in retirement than while working, but the thought that a retirement income of $62,000 makes one a 20 percenter just doesn't compute.
I'm not surprised at all.
The median family income in the US today is about $60k, meaning that 50% of families make more and 50% less. Since family income includes what both husband and wife earn, it's safe to say that a very large percentage of American workers are making are making a whole lot less than $60k annually.
A large percentage of retirees have only SS as their "income" and supplement it with withdrawals from savings held as cash in bank accounts or in CDs, neither of which pay much in interest, so essentially their "income" is what they get from SS.
Most pensions, whether public or private, are not nearly as generous as people without pensions believe them to be, especially those for older pensioners.
The percentage of older retirees, 80+, is significant, and many, if not most, of them are widows or widowers living on 1 SS/pension income.
I like to play with numbers so I did some calculations using the numbers in Table 3 (Summary Statistics on Financial Wealth, Income and Consumption) of the study
What I found is that while the top income quintile earns 3.47x more than the bottom quintile, this group only consumes 1.82x more than the bottom group. This results in the bottom 20% group spends 24% than their income while the top 20% group spends 35% less than their income.
Besides income, the top group also has significantly more wealth: The wealth to income ratios from the bottom group to top group are: 0.13, 0.50, 1.59, 4.20 and 9.45.
These numbers made me think that one possible contributing factor to the large consumption gaps among the group is that people with more wealth are more prodigious savers. They have a life long habit of living beneath their means to accumulate wealth and continue to do so in retirement.
We are certainly better off than many retirees but never consider ourselves well-to-do. We were quite thrifty (or could be considered 'cheap' by some folks) most of our life. We did not stop pinching pennies until after our daughter had graduated from college and our house paid for. Some of our hobbies (traveling and flying) are considered expensive by many but we are always frugal. Our last 17 days trip to Europe probably cost no more than a week of domestic trips for many people (with free frequent flyer tickets, moderate price B&Bs, eating dinners at moderate price restaurants every other day, buying food/wines at grocery stores etc). Just last week instead of having a mechanic to rotate the tires on our plane, we bought a bead breaker (with 25% off coupon at Harbor Freight) and did the work ourselves.
I made an earlier joke about booking several trips and go out to a nice restaurant after reading the article but of course it would be against our living style. We take about one 'big' trip a year and very rarely eating out. I generally dislike restaurant foods (have enjoyed restaurant foods maybe only a dozen times in all my life and the food quality not always correlates with the prices).
The impression I have after the article is that maybe some retirees' lives are more golden than how they feel. Maybe some of us are too pessimistic or fearful about our financial future. On the other hand, if some people are comfortable living beneath their means and just enjoy seeing their nest egg grows, more power to them.
Back in the day a 3-4 percent draw down rate was designed to keep your nest egg intact because it was reasonable to assume that over the long haul your nest egg would grow with inflation and that a 6-7 percent annual return over time was reasonable. Remember fixed investments paid more than. How much were CD's paying back then?
I like to play with numbers so I did some calculations using the numbers in Table 3 (Summary Statistics on Financial Wealth, Income and Consumption) of the study
What I found is that while the top income quintile earns 3.47x more than the bottom quintile, this group only consumes 1.82x more than the bottom group. This results in the bottom 20% group spends 24% than their income while the top 20% group spends 35% less than their income.
Besides income, the top group also has significantly more wealth: The wealth to income ratios from the bottom group to top group are: 0.13, 0.50, 1.59, 4.20 and 9.45.
These numbers made me think that one possible contributing factor to the large consumption gaps among the group is that people with more wealth are more prodigious savers. They have a life long habit of living beneath their means to accumulate wealth and continue to do so in retirement.
We are certainly better off than many retirees but never consider ourselves well-to-do. We were quite thrifty (or could be considered 'cheap' by some folks) most of our life. We did not stop pinching pennies until after our daughter had graduated from college and our house paid for. Some of our hobbies (traveling and flying) are considered expensive by many but we are always frugal. Our last 17 days trip to Europe probably cost no more than a week of domestic trips for many people (with free frequent flyer tickets, moderate price B&Bs, eating dinners at moderate price restaurants every other day, buying food/wines at grocery stores etc). Just last week instead of having a mechanic to rotate the tires on our plane, we bought a bead breaker (with 25% off coupon at Harbor Freight) and did the work ourselves.
I made an earlier joke about booking several trips and go out to a nice restaurant after reading the article but of course it would be against our living style. We take about one 'big' trip a year and very rarely eating out. I generally dislike restaurant foods (have enjoyed restaurant foods maybe only a dozen times in all my life and the food quality not always correlates with the prices).
The impression I have after the article is that maybe some retirees' lives are more golden than how they feel. Maybe some of us are too pessimistic or fearful about our financial future. On the other hand, if some people are comfortable living beneath their means and just enjoy seeing their nest egg grows, more power to them.
1) Please clarify.
2) the top quintile consumes more than they spend; wealth allows a person to consume more than they spend.
3) people with wealth are more prodigious savers because they can consume without spending, plus the top quintiles enjoy greater value than the bottom quintiles for equivalent spending.
2) the top quintile consumes more than they spend; wealth allows a person to consume more than they spend.
3) people with wealth are more prodigious savers because they can consume without spending, plus the top quintiles enjoy greater value than the bottom quintiles for equivalent spending.
Consuming more than you spend? That sounds like freeloading or theft, but I suspect you mean something else. Could you explain that? The "greater value for equivalent spending" is also confusing.
Well, it IS sort of common sense, that if a study were to pick 900 random retirees WILLING to be part of a survey like this, the really wealthy would not participate, having no interest at all. If the really wealthy (top 5%) were even cut in half, then their numbers would not skew the highest quintile much, being all of about 2 people. So I WOULD expect the the top quintile to be a lower mean number than what is generally expected, but find the number more representative of the everyday "worked hard, saved hard, doing fine" top quintile.
Also the top quintile is more likely to have no debt at all, no mortgage or car payments, and be in better health so lower medical costs. They would typically worked a non physically demanding job and are better educated, so their bodies are less worn out and they would be better investors with a more grounded concept of long term costs vs savings & income, and may also want to leave more to their heirs, rather than spend it all. Having more, means more options and less stress and the ability to ride out market down turns. So even if they live below or even at their means, and that level is higher than the lower quintiles, there is less worry about the "what ifs?". It is far easier to save money by shopping a bargain or doing the work yourself when you don't HAVE to, but instead, WANT to.
I save thousands by being my own mechanic, handyman, lawn man, plumber, electrician etc because I LIKE doing that kind of work. I have many friends just as well educated and make as much or even less than I and hire someone to do everything. They dont have the tools or ability and no desire to waste their free time on chores.
Maybe the top quintile really read and accepted the many suggestions to aim for 80% of their working years income in retirement and have a built in safety margin that allows for continued savings. Maybe they also feel less risk adverse and using their finance skills are able to get a higher rate of return on their investments because they have that margin of comfort/error. Maybe a 60-70 equity portfolio rather than one in a bank etc. We know from many forum discussions that there is a wide range of beliefs as to how much you need in retirement and what should be your guide for that. That would suggest many different outcomes and financial realities in retirement. I wonder if the data shows any difference between folks who take SS at 62 v 70?
A bit of topic but the Forbes article says $66,812 is top-20% income for 65+? I realize those are 2000 to 2010 averages but I would have thought there would be a lot more dual income married corporate, union, and public sector pension people bumping that up more.
Those figures were not for household but for individual. The span from the lowest to the second-lowest is not a very impressive difference.
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